Ian Dunt Everything you need to know about Theresa May’s Brexit nightmare in five minutes

Everything you need to know about Theresa May’s Brexit nightmare in five minutes"As May said when she won the leadership, she needs to show that she can make a success of Brexit""As May said when she won the leadership, she needs to show that she can make a success of Brexit"Ian Dunt By Ian DuntThursday, 14 July 2016 9:47 AM47

Is… is it over?

The constant news? No, it's very much continuing, but there's now some certainty. We've a new prime minister and Britain's negotiations to leave the EU are top of her agenda.

Yeah, I heard about this. 'Brexit means Brexit', right?

Right, except that that doesn't really mean anything. Leaving the EU is one thing, the actual deal you get is quite another. And Theresa May is about to try and solve arguably the most dangerous puzzle in international relations.Opinion Former News

Right, which most people think means ending freedom of movement. But there's a couple of reasons that doing that would be economically catastrophic. Firstly, EU migrants bring in billions of pounds a year in taxes. Curtailing their numbers in the UK would have a profound effect on our public finances. Secondly, freedom of movement is a requirement of the single market. And leaving the single market would be one of the most radical and economically risky acts this country has ever taken.

I thought Boris said we could stay in the single market and get rid of freedom of movement.

He was either lying or he didn't understand what he was talking about. Probably the first. The single market is a series of rules. His plan was like saying that you're going to visit Paris but not abide by French law. It was nonsense.

But the papers say May will be able to get some kind of deal

It's possible, but not probable. On the plus side, there is precedent. Norway is a member of the single market and it got a few allowances on things like postal services and fishing. People usually refer to this as 'EEA plus' or 'EEA minus', depending on the deal. But there's a downside. Norway still has to abide by the major single market rules, like freedom of movement, but without any say over them.

That doesn't sound like taking back control

It isn't. And anyone who thought they were voting to end freedom of movement might be quite upset to find out that they haven't.

Won't EU leaders offer us something? Maybe some limits on freedom of movement in exchange for some access to the single market.

Well a few member states might want to. France for instance. The French should never be trusted, but they should be trusted now least of all. They might offer Britain concessions on freedom of movement in exchange for an end to bank passports in the City of London.

What are bank passports?

They allow banks in London to sell services on the continent. It's a dangerous deal. It would end freedom of movement, which would harm the UK, and see much of the City up sticks and head to Paris, which would also harm the UK. But politically it would be very attractive. The public might like the sound of a deal which limits immigration and hammers the banks. So May could be tempted to take it. But even if she does, that's just one country. Eastern European countries would be opposed to that type of deal, and they get a veto. You need support from all the remaining members of the EU for this deal.

So it's impossible?

Not impossible, just improbable. Britain is a major market for European countries. The German car industry, among others, will be lobbying for governments to bend to keep it in the single market. And we have other things to offer too. Polish opposition to immigration restrictions, for instance, could conceivably be bought off by offering military commitments. So we're not exactly powerless. But the truth is most of the incentives are against us. EU member states don't want to encourage eurosceptic forces in their own country, so they'll want a tough deal.

Don't the Swiss have some sort of bespoke arrangement?

Yeah, it's true. The Swiss are almost as hard to please as we are. But the EU isn't about to replicate that deal. It hates it. It's fiddly and cumbersome and comes with loads of paperwork. They recently slapped down the Swiss for suggesting they could limit of freedom of movement too. And their deal doesn't include financial services. That's a big issue for us. We're a services economy.

So the single market route doesn't sound like it's going work. Why on earth does everyone keep mentioning Canada?

Well Canada is the new sex. They've got Justin Trudeau, they've got Mark Carney. It's ridiculous. They're like a real-life political Mad Men.

Is that why everyone wants a Canadian deal?

Unfortunately not. They've gotten a bit overexcited by the Canadian-EU trade agreement and want Britain to come up with its own one. But it's not as easy as they think. For a start it took seven years to get this far and it hasn't even been ratified yet.

Doesn't Article 50 just give us two years?

Kinda, sorta, not quite - we'll come onto that later. But whatever the legal arrangement, seven years is too long. It might be quicker for us - we've already got regulatory equivalence, so there are less differences to iron out - but it will still take a while. And then there's ratification. It looks like all national parliaments get a veto on the Canada deal, so that might hold things up a bit. Once it goes down to that level, you're at the mercy of Romanian widget manufacturers and any other group, in any EU member state, who feel the deal doesn't work for them. And services still aren't included in all this.

So what happens if we don't make any of these deals? After the two year countdown we just fall out the EU with no trade deals in place?

It's so much worse than that. This two year Article 50 timetable doesn't even apply to trade. Article 50 only applies to constitutional and legal arrangements. And more importantly it only applies to ending your current arrangements - not building ones for the future.

Hang on a minute. You mean we can't negotiate any trade deals, inside or outside the EU, while the two-year Article 50 process is ongoing?

Exactly. Actually, it's against the law for EU member states (we'd still be an EU member state until the end of the two-year process) to conduct bilateral trade negotiations with other member states or countries. There might be wriggle room here. If the UK and the EU enter into negotiations in good faith they could authorise those talks. But there's not that much good faith about and EU leaders are irritated by Britain's constant demands for a bespoke single market, its vote to leave and the continued uncertainty around its negotiating position. The thing to remember when imagining all this is that we have very little leverage, except for when we trigger Article 50.

So what happens when we fall out the EU at the end of the Article 50 process?

It's Year Zero. We will have no trade deals, no financial arrangements with the EU or anyone else. We're like a man being thrown out of a plane into the sea with no lifejacket. Seriously. I'm not making this up. It's scary.

I can see that. By the way, it's been five minutes.

I know. Whenever I write one of these things I always lie about the five minute things. I say it, because it makes an otherwise boring subject feel manageable, but then I basically just write as much as I like.

This is outrageous.

And yet here you still are. Don't you want to know what happens to the man who is thrown out of a plane into the sea with no lifejacket?

Alright

He has to revert back to World Trade Organisation (WTO) rules.

What are they?

They're a set of agreements on goods, services and intellectual property. They fix basic trade rules and lay out tariffs and things like that for each member state in 'schedules'. Lots of Brexiters, especially the free market types, quite welcome signing up to WTO rules. They think it would give them the ability to cut a bunch of tariffs and make the UK more open to competition from overseas.

Not exactly what those Labour voters in the Midlands and the north thought they were voting for.

Quite. Same old problem: voting on a vague statement. It's easy for people to turn it round on you. But even in this scenario, things are more complex than they seem. Unfortunately, to explain that, I have to go into tariffs, tariff rate quotas and subsidies.

I beg you not to do that.

It will be mostly painless. Once we went into WTO rules, the tariff question would be pretty easy to answer. We'd just keep whatever the tariffs were in the single market. Say it's five per cent on cars. You just take that system and impose five per cent on cars coming into the UK under the new system. But this time you'd apply it to goods going to and from the EU and Britain, whereas before there were no tariffs because we were in the single market together. The real problem comes when you deal with tariff rate quotas. These are arrangements where you can import a set amount of a type of good at one tariff rate, and any extra at another. So for instance the first 100,000 tonnes of wheat you import would be at two per cent and anything above that at ten per cent. These quotas are arranged across the single market, so if Britain leaves we have to figure out what quantity of the quota applies to us and what we want to do with it. That is a huge undertaking, the likes of which have never really been done before. After all, the last time they messed with the quotas was two EU enlargements ago and they still haven't been able to update them. It's too complex.

You're still talking.

It gets worse. Consider subsidies. We need to establish those all over again for every part of the British economy. And when we say 'figure it out', it’s properly from the ground up. The Brexit lot promised all things to all people. They promised they'd maintain all the subsidies but also that we'd turn into a free market libertarian paradise. Which is it? And what would Britain do with its tariffs? Reduce them, and allow cheap Chinese goods to flood the market, making life cheaper for consumers? Or keep them, and protect domestic industries? These are really big questions and there is no agreement - and certainly no mandate - for any of them.

Please tell me you’re done. I’m depressed, I’m bored and if you say Article 50 one more time I might throw up.

Stop it

OK, we're nearly there. Here's the kicker. Even with all those domestic arrangements sorted, you then need to go and sort out trade deals with the EU and all the other countries in the world. Well, probably. We may already have trade deals with some countries if we signed them as a member state in the EU. But that's legally debatable and isn't always the case anyway. And you'll need to do all this very quickly, because with no trade deals in place the UK will be considered a pariah for investment and so unstable that the markets will be terrified of being seen in the same room as it. The economic pressure will be huge. And the political pressure will be even worse. As May said when she won the leadership, she needs to show that she can make a success of Brexit. Number 10 will be desperate for deals. But where are all the negotiating resources we need to agree these trade deals? We don't have them. No-one does. It's too big a task.

So what'll happen?

Bad things. The most likely outcome is that we simply agree to all of the other team's demands. Fancy figuring out the transparency system for price fixing in the Korean public health sector? Because they are really into it. They have to publish the names of committee members who do these exercises. And now we're going to have to be experts in that so we can figure out what our red lines are. We'll be vulnerable to every whim of every lobbying firm in every country on earth. Take, for instance, the American pharmaceutical lobbying industry, which is very powerful and well-established. They'd love to have a go at the NHS. We would need an army of highly accomplished negotiators with lots of time and political support to stop them. And we won't have any of those things. We'll be very aggressively incentivised to accept any trade deal. It could be disastrous.

This is awful. Can we have another referendum?

Not really. If another referendum was likely in the future, we'd be asking all these countries to commit hundreds of thousands of highly-skilled man-hours to a negotiation which we might just annul later on. It would make the trade deals we got even less beneficial than the ones we're going to get anyway.

So we're doomed.

We're in real trouble. But May could follow a much-loved and long-followed rule of politics. She could find the longest grass available and kick this appalling problem right into it.

How would she do that?

An interim agreement. This would deal with her main problem, which is time. The Article 50 timetable is just so punishing no nation could come out of it safely. She could skip all this two-year stuff and agree an interim arrangement where the UK stays in the single market while it negotiates its ultimate Brexit deal, with a deadline of 2020 to coincide with the general election. Then she could go to the country looking for a mandate to sign that deal. That would calm the markets, provide a better situation for a decent deal with Europe and other countries, and generally make the whole process a lot less frightening and hysterical for all involved.

Won’t the Brexit guys hate that?

Yep, but no option is actually good, they're just different levels of bad. They'll hate it less than if she said she'd stay in the single market permanently. And who knows? After five years have passed, views might have changed. Ironically, the reduction in jobs due to Brexit would mean fewer immigrants coming to the UK, so that might relieve public anxiety about the issue. Or on the other hand, the EU could buckle under the weight of the refugee and Greek crises and we'll be even more desperate to get out.

It's been God-knows-how-long and your conclusion is: delay it.

That's right. In a world of terrible options, it's probably the least bad one. But who knows what May will do. The only real certainty is this: it sucks to be her.

Sucks to be us, too.

Yeah good point.

This article is based on conversations with Dr. Holger P. Hestermeyer, Shell reader in International Dispute Resolution at the Dickson Poon School of Law, Professor Anand Menon, director of UK in a Changing Europe and professor of European Politics and Foreign Affairs at Kings College London, and Dr James Strong, fellow in Foreign Policy Analysis and International Relations at the London School of Economics and Political Science.